Newbie trying to understand pips

[beckbeck89]

Brand new to forex and one of the first things that stood out is pips. I've never seen money displayed this way. Everything else in life is two decimals. If I want milk from the shop it's £2.90, if I want to buy an Apple share it's $195.27. But if I want to buy EUR/USD it's $1.1369

What is unique about forex that it needs money to go to four decimal places? and how is it physically possible? You can't really pay someone $1.1369.

Does anyone know anywhere that explains this in detail?? Please link if possible.

Thanks in advance for any help.

 

[Enivid]

What is unique about forex that it needs money to go to four decimal places?

Low average daily change combined with high trading volumes. EUR/USD can spend a day without its rate changing by a full cent value, but it can still go from 1.1320 to 1.1370. EUR/USD is normally traded in lots of 100,000 each, so even a change by one pip (0.0001) results in a profit or loss of $10.

You can trade USD/JPY if you prefer two decimals.

 

[Erebus]

You never buy Petrol? If you can understand that, you can work with Forex.

Here in Australia we have a unique double decimal point system for quoting the price of Petrol; it goes right down to 3 decimal places of a cent.

And there is not even a cent left in the money, 5 cents is the smallest.

Are they just fooling themselves or the whole general public?

See this sign, the price is $2.21.90 or do we read it as 221.90 cents.

Just ridiculous, you can never pay that amount, it's always rounded up or down, who knows.

 

[hayseed]

What is unique about forex that it needs money to go to four decimal places? and how is it physically possible? You can't really pay someone $1.1369.

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it has to do with both precision and scale...... when banks are exchanging millions of one currency for another, every decimal point important...... you would want every decimal you could get if exchanging large amounts......

no one really expects a customer to walk into a bank with 1 usd and say please exchange this for nzd's..... except maybe oanda......

to avoid decimals you must increase the scale...... nzd/usd is around 0.5950 right now, quoted in 4 decimals...... if you walked in a bank with 10,000 usd, they would hand you maybe 5950 nzd's.....

but what if the nzd/usd was quoted with only a single decimal , 0.5 ...... you would only get 5000..... the banker would pocket that remaining 950......

and if you exchanged 1 million, with a single decimal quote how much would the banker pocket....... 95,000......

at some point with low value currencies even 5 decimals points are not precise enough, so they use significant digits......

significant digits might be 7 or 8 decimal points........

bankers will be bankers........

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gas around here is 2.479 a gallon...... so to exchange that to erebus's price above, we would have to use the aud/usd exchange rate (0.6424) and factor in liters to gallons and taxes...... too much math for me.......

think i'll just trade with the trend.......h